Monday, 22 September 2014

Post Referendum Policy for the SNP

Scotland will never be independent until currency is not an issue that concerns people over the transition. People were too scared, and will be too scared. The Scottish Government's proposal of a currency union was clearly sub-optimal economically and was rightly attacked by many economists. But alternative proposals of joining the Euro or creating a separate Scottish currency were never going to fly given voter psychology.

I think there are two routes for currency becoming a non-issue at a future putative referendum: the first is for the UK to join the Euro. This I don't see happening any time soon.

The second route is via the creation of a confederal UK. Gordon Brown, in his seizing of the political initiative two weeks ago, has created a clear mandate from Scotland for the UK as a transfer union in which risks and resources are "pooled and shared". But given 45% of a very high turnout voting for independence with many of the remaining 55% favouring further powers under the competence of the Scottish Government, I don't think Jack Straw has any mandate for his proposal that a No vote is made permanent and that the UK becomes like Spain in its claims of constitutional integrity. Rather, the 1.6 million votes for independence, plus many more for enhanced powers, is a strong vote for confederation.

Confederation is the opposite of devolution. Currently Westminster devolves power to Holyrood. Under confederation, the Scottish Parliament would cede powers to the UK parliament. The referendum has made clear that those powers should be defence, foreign affairs, monetary policy and, thanks to Gordon Brown's intervention, fiscal policy. Confederation initially would cede exactly those powers that are currently "reserved" under devolution. This is what I feel the SNP should switch to campaigning on (perhaps they could draft the addendum that the UK Government would have to add to a forthcoming Scotland Bill on further powers) rather than any crazy suggestions like changing the mechanism of achieving a mandate from referenda to simply winning elections.

The advantage of confederation for the independence movement is that it would be clear that sovereignty ultimately rested in Scotland, and because of the current democratic will, powers were currently passed upwards to share within a supranational union. If the democratic will changed, the detail of which powers were ceded could change (even all of them, contra Jack Straw). In particular, if the democratic will at some point in the future no longer favoured a fiscal union, or representation by the UK internationally (i.e. in EU or in NATO) but still favoured a monetary union (*) then Scotland could cease to cede these powers to the UK level. This is effectively the independence of the Scotland's Future White Paper - but it wouldn't feel like it to a risk averse electorate, or to an electorate that valued a British national identity, since British institutions would always remain. It would also avoid any traumatic transition periods, eliminating the risks of capital flight and market collapse, and lowering start-up costs since the creation of institutions could be gradual.

(*) This would incorporate fiscal sharing arrangements as outlined by BoE governor Mark Carney, and crucially the laws and the detail of this fiscal sharing arrangement would be decided by UK institutions. This would be a monetary union that prescribes (G-T)/Y and specifies, ex-ante, transfers in response to asymmetric shocks; it would not prescribe G/Y and T/Y separately, or the detail of tax and welfare policy, which are prescribed in any immediate post-referendum arrangement.